Lawyers have discovered the huge potential to be found in the world of "big data."

The process really started in 2006, when amendments to the U.S. Federal Rules of Civil Procedure allowed electronic information, such as spreadsheet, emails, audio and video clips, to be covered by the pre-trial discovery process. The updated rules created the concept of eDiscovery, and raised the costs and time required given the need to examine records stored in an unstructured manner on network drives, PCs and PDAs. Today, eDiscovery is standard operating procedure during a trial.

But that’s just one application of big data in the legal industry. The industry is full of transaction-based processes — from service of process to trademark filings to legal billing invoices. There are opportunities for the legal industry to responsibly leverage the data that is a by-product of these transactions to improve decision making and streamline operations.

Take, for example, electronic invoices. Insights from invoice data can help to identify the real drivers of billing rates, allowing companies to take appropriate action to reduce their legal spend. This is especially relevant in today’s economic conditions. Corporate law departments are increasingly pressured by CEOs to demonstrate business-centric results, and law firms are being asked to provide greater clarity around pricing and staffing decisions. Intelligence derived by legal invoice data can help both law firms and law departments identify a balanced solution.

The typical electronic legal invoice format captures information such as legal process, practice area, industry, law firm timekeeper (associate vs. partner), law firm size and location. By analyzing this data, corporate law departments can see what they are billing most, with whom, where and at what rate. Armed with this information, corporations can take action to increase efficiency and find alternative solutions to current arrangements with law firms. With this same information, law firms can have a more informed discussion to better negotiate price and value of their services.

Analyzing the data from legal invoices can provide perspective on assumptions the legal industry has on ways to reduce costs. For example, it is assumed that consolidating law firms will yield greater cost savings, but at what cost? Law firms are typically selected because of their area of expertise, which may be lost during a law firm consolidation. To mitigate such a risk, data analysis may reveal that savings can be found by retaining law firms but moving the work from a top-tier city, such as New York, to another location like Atlanta. With this approach, the law department preserves the expert counsel and reduces cost, while the law firm retains the client.

And there are bigger implications. Conducting an analysis of the pricing levels in the $250 billion legal services industry can help redefine the way legal professionals manage the business of law. The traditional legal billing model is based on the hourly rate. The recent influx of alternative fee arrangements such as project-based pricing may only offer a temporary solution. The approach to legal billing needs to change but such a transformation can only be realized when a deep analysis of the industry is done to reveal the true drivers of rates.

eDiscovery and legal billing rates only scratch the surface of the potential power “big data” has in the legal industry. Many other sources of data can be analyzed to offer insights and identify trends. Service of process records can help legal professionals identify litigation trends; trademark filings can support intellectual property practitioners’ efforts to gain competitive advantage; and commercial lending activity can help M&A counsel better predict risk.

There are enormous opportunities for big data to transform the legal services business. This industry is ripe for change, and early adopters will have a clear advantage. Finding the right partner to harness and analyze legal big data will elevate select law department and law firms as the leaders in the industry’s transformation.